Global financial advisory service firm, KPMG has stated that headline inflation in Nigeria will reach 30% by December 2023. Nigeria’s current headline inflation rate for the month of September is 26.72%.
The report noted that recent reforms in the petroleum industry (like the fuel subsidy removal) and unification of the foreign exchange market will be responsible for the projected spike in prices of goods and services.
KPMG stated this in her macroeconomic review for the first half of 2023 and her outlook for the year’s second half (H2).
- It reads, “We anticipate that the current inflationary pressure in the economy will persist into H2 2023… Specifically, our model suggests that the combined influence of fuel subsidy removal and foreign exchange liberalisation may drive headline inflation to about 30% by December 2023.”
MPR hike will not curb inflation
On how to control inflation, the report explained that the current MPR hike being adopted by the apex bank in the last 18 months has proven ineffective in stalling the increasing inflationary trend. However, it advised that addressing issues such as energy and transportation costs, supply chain problems, and boosting local production will be more effective than increasing interest rates.
Fuel subsidy removal and FX unification to lower GDP growth
The report also projected that Nigeria’s economy will grow by 2.6% in 2023- a considerable reduction from the World Bank’s projection of 2.8% in 2023 and that the recent reforms from President Tinubu such as fuel subsidy removal and unification of the FX market will lower GDP growth in the country.
- The report reads, “We expect the Nigerian economy to grow by 2.6% in 2023, lower than the revised World Bank’s 2023 forecast of 2.8% for Nigeria and the 3.1% growth rate achieved in 2022.”
Also, the report explained that recent macroeconomic malaise during the first half of the year such as the failed naira redesign policy, weak growth because of low crude oil output, high inflation, and the fuel subsidy removal and devaluation of the naira will have negative ripple effects in the second half of the year.
Backstory
Nigeria’s inflation rate has consistently increased for the past nine months to a two-decade high of 26.72% in September. Analysts have attributed the record inflation levels to fuel subsidy removal and reforms in the currency markets embarked upon by President Tinubu.
Since the initiation of these policies, transport costs and food prices have nearly doubled as the naira has weakened by almost 60% trading at N780 to the USD in the official window.
With Nigerians depending on food imports to meet their national demand, food inflation has increased to 30% according to the NBS.
